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A U.S. court has issued an order that — while breaking no new ground — underscores an unpleasant reality. The case is remarkable only for the size of the taxes and penalties at issue: several hundred million dollars.

UPDATE: Here you will find the Court’s opinion and orders as a Word document and as a PDF. Happy reading.

The reality? In tax matters there is less privacy than you think. The government can have access to much information, including the discussions you have with your tax lawyer.

Much noise is made by privacy buffs about hiding behind the attorney-client privilege. Lawyers do it, too, as a misguided effort at marketing (“Hire me, because what you tell me is secret!”). But the reality is something quite different.

The system is set up to prevent this.

Tax lawyers have to consider whether their actions — as lawyers for their clients — might not in fact land them in hot water. Simple example that I face in my practice: people with money offshore. They want to bring it from darkness to light. They also don’t want to pay the taxes, file the tax returns, and face the music. If I help them in the way they want to be helped, I’m putting myself at risk. I’ll spend time in the Federal facility in Lompoc along with my client. Examples of risks? Conspiracy to defraud the U.S. government. Money laundering. In other words, big stuff.

Here’s the fun part. Figure that a lawyer does this and gets in hot water. Now the client asserts the attorney-client privilege. Worst of all possible worlds. Lawyer can’t testify about stuff that would save his own skin, and the client can say whatever he wants.

So that’s the first reason the tax system is set up to prevent secrecy: lawyers are potential criminal defendants themselves.

The second reason: the tax laws are written so that if something ends up on a tax return, the IRS can find out all about it. There is no privilege. Thus the universe of protected communications is quite small.

The third reason: people do dumb things and they waive the privilege by their actions. Even if you have the protection of the attorney-client privilege, you can blow it.

These are the rules of the road. Bottom line: play hard, but play clean.